PARIS — L’Oréal is in overdrive.
“All six cylinders of our engine — technological innovations, creation of major products, value enhancement, brand power, internationalization and acquisitions — have been running better and faster than before,” said Jean-Paul Agon, the French beauty giant’s chief executive officer, on Friday during a financial analyst meeting held at company headquarters in a Paris suburb.
“We have every reason to believe that our cylinders will continue to run well in the second half, and so enable us to well maintain this momentum. This is why we have raised our target for like-for-like sales growth to plus-7 percent to 8 percent for the full year.”
As reported, L’Oréal posted profit after minority interests of 1.18 billion euros, or $1.57 billion at average exchange, up 8.4 percent in the first half of 2007 versus the same year-ago period. This came on sales of 8.51 billion euros, or $11.3 billion, which rose 9.4 percent, or 7.7 percent at constant group structure and exchange. L’Oréal also increased its organic sales growth target range for 2007, formerly setting it at 6 to 8 percent.
Agon fielded wide-ranging questions, including one regarding L’Oréal’s acquisition policy.
“You should only make an acquisition when it makes true strategic sense,” explained Agon. “Mr. [Christian] Mulliez [the company’s executive vice president of administration and finance] and his team have never had as much work to do in terms of acquisitions because our philosophy now is to look at absolutely everything, to scrutinize all of the opportunities out there. That doesn’t mean we’re going to make more acquisitions, but we’re not going to miss any acquisitions that are right up our street.
“We buy something because we feel that it is a good piece of the strategic puzzle,” he added.
Agon said he’s been happy with the company’s buys over the past 18 months, including of The Body Shop, Sanoflore and PureOlogy, as well as the launch of Diesel fragrances, “an entirely new brand — like an acquisition,” he said.
Agon is also bullish on L’Oréal’s recent takeovers of U.S. salon beauty distributors Beauty Alliance and Maly’s West. When asked whether there’s a good chance that non-L’Oréal-owned brands will pull out of them, it was made clear it is too soon to know for sure.
This story first appeared in the September 4, 2007 issue of WWD. Subscribe Today.
At Beauty Alliance and Maly’s West, where L’Oréal generates some 50 and 60 percent of business, respectively, Agon believes brands such as those with niche names will stay.
“Obviously, it’s more uncertain for brands that are very much like ours,” he said, adding L’Oréal’s objective behind the acquisitions is to integrate the distribution of its brands to optimize fully its collaboration with hairdressers.
Further on the subject of North America and the consumption of beauty products there, Agon said, “It can be negatively influenced by the fact that there is going to be pressure on American consumers — real estate prices are dropping, the price of gasoline is going up — that’s not very favorable. But, paradoxically, on the other hand there is a favorable element. Historically, we’ve always seen that where it is more difficult to get credit, consumers tend to buy fewer durable products, to tighten their belts in that regard, but then tend to add more daily consumption products to boost their morale. We’ve seen this happen many times over. So, all things considered, we’re really quite confident.”
In the first half of 2007, L’Oréal’s growth in North America was 2.7 percent, versus 3.5 percent in Western Europe.
“In the United States we have the firm intention of doing what we managed to do in previous years in terms of gaining market share,” said Agon.
There, like everywhere else, L’Oréal’s goal is to beat market growth by 1.5 times at least.
“We could do more but want to try not to do less,” he said.
Agon said the worldwide cosmetics market grew 5 percent during the first half of 2007, a clear upturn compared with the last five years.
The company’s “rest of world” business has accelerated: In the half, it posted 10.3 percent gains.
“I look at that as a very good sign,” said Agon. “Those countries that we now label as ‘the rest of the world’ are the great nations of the future.
“This year, for the first time, Russia and China will be among the 10 leading L’Oréal countries,” continued Agon. “And I can tell you that Brazil and Mexico are not far behind.”
The market responded favorably to L’Oréal’s first-half turnout. The company’s stock closed at a unit price of 85.98 euros, or $117.27 at current exchange, up 1.9 percent on the Paris Bourse Friday.